Page 1 Auditor Reporting – Listing of Independence/Ethical Sources Bruce Winter, IAASB Member and DT-700 Chair IESBA Board Meeting – Agenda Item 8 April 8, 2014

Page 2 Dominant project on IAASB’s current agenda 2011 Discussion Paper/2012 Invitation to Comment/ 2013 Exposure Draft Targeting final standard to be approved September 2014 IAASB – Auditor Reporting Project

Page 3 Key audit matters Going concern Enhanced descriptions of management and auditor responsibilities Engagement partner name Explicit statement about independence/ethics Auditor Reporting Project – Headlines

Page 4 Two aspects to the proposed statement required in the ED –(i) Auditor required to make an explicit statement that “we are independent of the Company within the meaning of…and have fulfilled our other responsibilities under those ethical requirements.” –(ii) Auditor required to list specific sources of independence and ethical codes that were applicable to the audit Prominent placement of statement within “Basis of Opinion” paragraph Statement about Independence and Ethics

Page 5 Independence and Ethical Requirements – IAASB and DT-700 Discussions To Date Retain a statement about independence and ethical requirements responds to calls for greater emphasis in this area –Clarification of wording in the illustrative auditor’s report needed to address concerns Acknowledge practical challenges of proposed requirement to list sources particularly in multi-jurisdictional audits –However, value in seeking an option that will provide some transparency about sources –Options are being explored to seek middle ground in this regard

Page 6 Option #1 – Retain the approach in ED and require that the auditor list all source(s) of independence and ethical requirements Option #4 – Withdraw the proposed requirement to list sources in ED –Include application material to explain voluntary listing of sources Options Being Considered – Para. 20 (a) and (d) of Agenda Item 8

Page 7 Option #2 – List [principle] sources applicable to group engagement team Option #3 – Refer to country [or jurisdiction] of underlying independence and ethical sources Options Being Considered – Para. 20 (b) and (c) of Agenda Item 8

Page 8 IESBA members are asked for views about: The options being considered in Agenda Item 8 for a statement about listing the sources independence and ethical requirements in the auditor’s report Their preference for a particular option, or whether there are alternate options that should be considered Matters for IESBA Consideration

Page 10 Research and Consultation Academic research (2006–2009) Review of national developments /initiatives (2009–2010) Consultation Paper: Enhancing the Value of Auditor Reporting (May 2011) Commencement of Standard Setting Project proposal (December 2011) Task Force and Subcommittee Appointments (January 2012) Consultation on Indicative Direction Invitation to Comment: Improving the Auditor’s Report (June 2012) Outreach including roundtables NY, Brussels & KL (June–October 2012) Exposure and Finalization of Standards Exposure Draft (July 2013) Consideration of Comments (January- September 2014) Final Standards (September 2014) Next Steps Activities to support implementation (2015–2016) Standards effective for years ended December 31, 2016? Post-implementation review (2017 and beyond) Auditor Reporting Project Timeline and Status

Page 11 Drafting Team Structure and Responsibilities for the Auditor Reporting ISAs Continuing to be nimble in determining the best way to progress rapidly – Formed new Drafting Team (DT-570) post-exposure; ISA 720 TF addressing other information DT-701DT-700DT-570 Key Audit MattersOther Suggested ImprovementsGoing Concern ISA 701 – KAM ISA 706 – Emphasis of Matter and Other Matter Paragraphs ISA 260 – Communication with TCWG ISA 700 – Unmodified Reports ISA 705 – Modified Reports ISA 800 Series – Special Purpose Financial Statements or Elements ISA 570 – GC Liaison with accounting standard setters